Perhaps an obvious tax question

weedav

Hello! Maybe this is obvious, but I don't really understand tax, so I hope somebody can help me!

My understanding is that a higher rate of income tax is paid on any earnings over £30,000?

If this is correct, when does the higher rate kick in? Does an employee begin paying the higher rate the month they earn above the £30,000? Or, is it spread out over the year, applied in months where monthly pay would result in a salary topping £30,000?

My worry is that in a couple of months time my monthly pay is going to suddenly cut in half!

Thanks!
Dav

ben500

weedav wrote:

Hello! Maybe this is obvious, but I don't really understand tax, so I hope somebody can help me!

My understanding is that a higher rate of income tax is paid on any earnings over £30,000?

If this is correct, when does the higher rate kick in? Does an employee begin paying the higher rate the month they earn above the £30,000? Or, is it spread out over the year, applied in months where monthly pay would result in a salary topping £30,000?

My worry is that in a couple of months time my monthly pay is going to suddenly cut in half!

Thanks!
Dav

If I understand your question correctly you are on PAYE and earning £30,000.00 pa, if this is the case you are not due any increase as the upper tax band actually commences at £32,400.00 from £31,400 for last tax year.
If you are earning above this figure then the increase should already be included in your PAYE spread over the year, a simple check of you tax code should reveal what bracket you are in.

check here to identify if you are on the right code

http://www.hmrc.gov.uk/rates/it.htm

weedav

Hi! Thanks for getting back. Just going to check my code.

I am on PAYE.

My base salary is £26,250, but my monthly earning can be sporadic as I earn a lot of overtime and bonuses. Between April and September I have earned £18,000 - and I am likely to earn more over the second half of the tax year. My annual figure is more likely to be around £38,000. How does this affect everything!?

weedav

I am a bit flummoxed by the tax website

ben500

If you are on PAYE and obviously going to exceed your current tax allowance you would normally get some kind of notice advising you that you will be due to go on a higher tax rate, however if you are concerned then you should contact the inland revenue advise them fully of your current circumstances and fears, they will be more than happy to discuss your concerns with you and advise as to how you should act or how much to set aside, it is important to do this to avoid the kind of situation you are fearing at the moment, put your mind at rest and make the call, if you don't then the chances of an unpleasant surprise will be greater and even if you don't get one the stress of worriying about it will do you no good and you may even be putting yourself through it unnecessarily

bob999_2

income tax is cumulative thing calculated on earnings from 6th April to 5th April each year.
So for instance this year 6/4/05 to 5/4/06 you can earn upto £32400 only only pay tax at 22%.
Also we have personal allowances which need to be added to this figure, so for instance 489 means we can earn 4895 on top of 32400 and still only pay tax of 22%, So earnings greater than 37295 you just pay tax on 38000-37295=705 at 40%.
Also dont forget national insurance which we pay of around 11%, which drops to 1% approx for 40% payers .
So 22%+11% and 40%+1%

weedav

Thanks! I will do that. My tax code is 489L.

ben500

bob999 wrote:

income tax is cumulative thing calculated on earnings from 6th April to 5th April each year.
So for instance this year 6/4/05 to 5/4/06 you can earn upto £32400 only only pay tax at 22%.
Also we have personal allowances which need to be added to this figure, so for instance 489 means we can earn 4895 on top of 32400 and still only pay tax of 22%, So earnings greater than 37295 you just pay tax on 38000-37295=705 at 40%.
Also dont forget national insurance which we pay of around 11%, which drops to 1% approx for 40% payers .
So 22%+11% and 40%+1%

Now there's someone who knows their tax!Bet you don't pay more than due!!

SUPERJULES

I am a tax advisor, and I would advise that your salary should be sorted out through the payroll department and that you shouldn't need to worry about it as they know all your salary details and the amount of tax that has already been paid through the year.

If I were you I would either contact your payroll dept or wait until you get your payslip and then either discuss it with your payroll dept or the inland revenue if you are not happy.